Power-Industry bailout heads off threat to lenders

Nigeria has headed off a threat to its banking industry by propping up struggling power companies with an intervention fund, said analysts including Pabina Yinkere of Vetiva Capital Management Ltd.

The 213 billion-naira ($1.3 billion) fund announced by President Goodluck Jonathan’s administration on Sept. 19 will be used to pay off gas-supply debts owed by power companies and to cover revenue shortfalls. It will also help them meet debt-service obligations to banks on loans of almost 500 billion naira, on which some were falling behind.

“The government is reacting to the risk affecting the power industry as a whole and the sustainability of the reform, which dovetails to the banks,” Yinkere said in a phone interview from the commercial capital, Lagos, on Sept. 24. “This intervention fund will ease the stress in the industry and in effect reduce the probability of loans going bad.”

Nigeria dismantled its power monopoly and sold the hydro-and gas-powered plants it ran last year to try to bring in investment needed to expand electricity supply, with demand more than three times the current output of about 3,800 megawatts. Companies including Transnational Corp. of Nigeria Plc, Korea Electric Power Corp. (015760) and Forte Oil Plc (FO) paid more than $3 billion for controlling interests in 15 power generators and distributors.

UBA Plc (UBA), Nigeria’s fourth-biggest lender by market value, granted $700 million in loans to several investors, including Transnational, which got $215 million to buy Ughelli Power, the country’s second-biggest gas-fueled plant with capacity for 900 megawatts.

Guaranty Trust Bank Plc (GUARANTY), the largest lender by market value, advanced $170 million to Mainstream Energy Solutions Ltd. for the concession of Jebba and Kainji hydropower plants. Zenith Bank Plc (ZENITHBA), the second-biggest lender, provided 40 billion naira for the acquisition of two electricity distribution companies in Lagos. Others such as Ecobank Transnational Inc., Diamond Bank Plc (DIAMONDB) and Skye Bank also provided loans to power investors.

Authorities in Africa’s largest economy are putting together new regulations to protect lenders, electricity consumers and other utilities in the event that the power companies fail, according to central bank Governor Godwin Emefiele and Petroleum Minister Diezani Alison-Madueke.